The effective protection of trade secrets is essential to the continued economic success of most undertakings. On 26 April 2019, after much debate and significant delays the new German Law on the Protection of Trade Secrets (Gesetz zum Schutz von Geschäftsgeheimnissen, GeschGehG – the “Trade Secret Law”), came into force, finally transposing Directive (EU) 2016/943 on the protection of trade secrets against unlawful acquisition, use and disclosure. The Trade Secret Law brought several changes to the regime of trade secret protection in Germany. Most notably, it introduced a new definition of what information constitutes a trade secret, established clear rules on liability, expressly permitted the reverse engineering of freely available products and introduced new possibilities for the protection of trade secrets by the courts during trail.
Now, almost two years after the Trade Secret Law came into force, several courts have dealt with different aspects of the new legislation. While most of the changes of the law bring more legal certainty, a recent decision by the Stuttgart Court of Appeal1 made the pitfalls faced by undertakings when it comes to the legal protection of their trade secrets readily apparent. The new definition of what information constitutes a trade secret is the cause for significant legal uncertainty. Under Section 2(1) of the Trade Secret Law, “trade secret” means information
a) which is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question,
b) which is subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret and
c) where there is a legitimate interest in maintaining confidentiality.
It is Section 2(1)(b) of the Trade Secret Law that proves problematic: The lack of established case law in Germany as to what measures constitute reasonable steps under the circumstances to keep the information secret, is cause for concern. Undertakings face the risk that their assessment of the adequacy of their measures might not be shared by the court, resulting in the relevant information not meeting the criteria for trade secrets within the definition of the Trade Secret Law. While the courts have held that optimum protection is not required and that the appropriateness of the measures is to be assessed “according to the specific circumstances of the individual case in the sense of a proportionality test”2, there is a distinct lack of specific criteria undertakings can rely on. This is a particular problem as some courts require a secret-protection-management specifically focused on the individual secret3.
In its judgement, the Stuttgart Court of Appeal referred to the legislative proposal of the Federal Government (Bundesregierung) to offer some general guidelines to determine the adequacy of security measures under the individual circumstances:
- the nature and value of the trade secret
- the importance of the trade secret to the undertaking
- the cost of research and development
- the size of the undertaking
- the usual security measures of the undertaking
- the way of labeling the information
- stipulations in contracts with employees and business partners.
The court summarized that, at a minimum, the relevant information should only be entrusted to persons who require the information to perform their work and who are (contractually) bound to secrecy.
Furthermore, the Stuttgart Court of Appeal took a very critical view on permitting the storage of files containing trade secrets on private data carriers, in particular, if the data was accessible without a password. The owner of the information would thereby effectively relinquish his control over his data as he would be in no position to prevent unauthorized third-party access, e.g. by co-users of the same device or – in case of a re-sell – due to prior insufficient deletion of the data. With regard to paper documents containing trade secrets, the court held that undertakings are required to guard such documents sufficiently against unauthorized access, either by locking up the particular documents or the room in which the documents are stored.
While the judgment of the Stuttgart Court of Appeal made a first attempt to alleviate some of the legal uncertainties regarding what measures constitute “reasonable steps under the circumstances” to protect an undertaking’s valuable information, undertakings should be very much aware of the scrutiny their security measures for keeping trade secrets secret may face in court. As every case is different, it may be years before undertakings have sufficient jurisprudential guidelines to effectively model their security measures to the requirements of the German courts.
This alert was co-authored by Zakiya Mzee.